I can't let the bankruptcy of General Motors go by without comment. Yesterday was truly a sad day for what was once the largest and most powerful U.S. corporation. According to its bankruptcy filing, the company has assets of $82.3 billion and debts of $172.8 billion. That is a going-out-of-business plan if I've ever seen one. While the company is not going out of business -- yet -- it is embarking on a major cost-cutting campaign. This campaign includes letting go of 25,000 employees, closing 17 factories and parts centers, and getting rid of 2,400 of its 6,000 dealers across the country. GM has been a part of the Dow Jones industrial average since 1925. No longer.
But how did GM get to this place, and what can other businesses learn from GM's tough lessons?
- Don't get too bureaucratic. Companies today have to be nimble and ready to quickly meet the needs of a changing marketplace. Unfortunately, GM and its many layers of bureaucracy significantly lagged the market and could not keep up with the needs and desires of its customers. When fuel prices were high and customers wanted smaller, more fuel-efficient cars, GM was still pushing its gas-guzzling, road-hogging SUVs.
- Don't support overlapping brands. GM supported money-losing brands long after they served their purpose. One of the things that made GM successful in its early years was Alfred Sloan's idea of giving buyers a "ladder of success" to graduate from brand to brand (from Chevrolet to Pontiac to Oldmobile to Buick to Cadillac) as they got older and as their incomes increased over time. However, supporting all these brands (plus more recent brands like Saturn and GMC, and their dealer networks) cost GM massive amounts of money in duplicate costs. Consider Toyota, now the world's largest automobile manufacturer, which has done well with just three brands worldwide: Scion (for youthful buyers), Toyota, and Lexus (the company's luxury brand).
- Don't get too cocky. For some reason, GM's management team (led semi-competently by Rick Wagoner) thought they could do no wrong -- even when all the signs years ago pointed to the fact they were in serious trouble. Well, guess what? GM's management team could do wrong -- and they did. Time after time after time. As former GM board member H. Ross Perot famously complained, "At GM the stress is not on getting results—on winning—but on bureaucracy, on conforming to the GM System. You get to the top of General Motors not by doing something but by not making a mistake."
So we mourn the passing of this once great American industrial icon. But we also have hope for its future. Perhaps the company's management team (many of whom remain intact) will take these lessons and many others like them to heart. And perhaps the General Motors that emerges from the wreckage will be really be leaner, greener, and ready to take on the world.
The old GM is dead -- long live the new GM.
Enjoyed reading your take on GM..... My question or comment would be that the unions seemed to control the costs that GM had to pay out to have the autos made and produce the parts for repair and costs for maintenance. Had they not had control GM may have been able to reduce some of these costs. The union costs, beyond what goes to the actual employee, seem extreme and the unions were unyielding to any concessions for GM and other automakers. Do you think this played a role in the rise and demise?
I honestly don't know ALL the details on how much unions have added to GM and other automaker costs, but I suspect it's a lot. However, the cost of GM's vehicles was just part of the equation for the company's failure. When the gas prices went crazy last year, GM was caught flat-footed. They didn't have enough models of gas-sipping cars and trucks. The import companies did, and they couldn't keep their vehicles in stock. At the same time, GM was practically giving away their cars to try to get something going. I know because I bought a brand-new Chevy Tahoe at the end of last summer for $12,000 off the sticker. GM was selling them for "employee pricing" ($8,000 off sticker) WITH a $4,000 rebate. Long story short, unions certainly paid a role in both GM's rise and its ultimate demise. I'm hoping that a lean, mean company rises out of the ashes and that the best years are ahead.